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Global Trends Favor Microsoft Corporation (MSFT)’s New Surface Pro

Microsoft announced quarterly revenue of $21.46 billion for the quarter ended December 31, 2012. Operating income, net income, and diluted earnings per share for the quarter were $7.77 billion, $6.38 billion, and $0.76 per share, During the earnings conference call, Chief Financial Officer Peter Klein repeated a number of times that Surface contributed to revenue.

“Certainly this quarter [Surface] was a contributing factor to revenue growth in the Windows business,” Klein said. During the call, Microsoft cited Surface as a part of non-OEM revenue that grew 40%.

Microsoft Surface

Microsoft’s first Surface was released in October, and it is driven by a form of Windows 8 called RT, which is contained in competing tablets and smartphones. The new Surface Pro will be released to enable customers have the opportunity of choosing the type of their choice. Through such an option, they can personalize their experience and gain greater enjoyment from the tablet. Microsoft officials stated Surface RT will soon be shipped to Austria, Belgium, Denmark, Finland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.

“We are thrilled to expand the Surface family with the release of Surface Pro,” said Panos Panay, corporate vice president, Microsoft Surface. “The launch of Surface Pro marks a pivotal moment for customers who can now do more with their machines than ever before. Within the Surface family, customers will be able to choose a combination of devices that best suit their needs: Surface Pro, which provides the power and performance of a laptop in a tablet package, or Surface RT, which offers the convenience of a tablet with some laptop capabilities so you can get things done.”

It is noticeable that the Surface Pro tablets are among Microsoft’s first products shipped to the market in the New Year. The Surface line of products is proving popular with time, and gaining a head start early in the year over its rivals is good for Microsoft. When we relate Microsoft’s tablet sales to its recent financial statement, it is clear Microsoft has been improved in comparison to its 2013 first quarter report, so it can be said that the company is operating at an efficient level.

Fundamentals & Competitor Analysis

Microsoft currently has a P/E ratio of 15.41. This compares to Apple Inc. (NASDAQ:AAPL) at 10.58, Google Inc (NASDAQ:GOOG) at 24.26, Dell Inc. (NASDAQ:DELL) at 9.33, Oracle Corporation (NASDAQ:ORCL) at 16.41, Samsung (SSNLF) at 8.68 and industry average at 11.70. Microsoft has a huge opportunity here. The Surface Pro was recently released, and the $999 128GB model sold out instantly. On the day of the release, Microsoft shares jumped 1.13%, and the stock traded well above its daily average of 50.3 million shares. Microsoft is set to rise on strong sales of the Surface Pro.

With gross margin of 73.47%, compared 38.63% for Apple, 60.06% for Google, and 20.93% for Dell, and price-to-sales ratio of 3.20, compared with 5.14 for Google and 4.45 for Oracle, and price-to-earnings ratio of 15.31, compared with 24.29 for Google and 16.44 for Oracle, Microsoft does seem to be ahead of its peers. Samsung has just released its ATIV PC PRO, but it lacks an e-mail client. Apple’s iPad 3 is in direct competition with Surface Pro, but it lacks microSD slot for storage expansion. Dell has just launched its latitude tablet, but Surface Pro can give it a run for its money. With the Surface Pro release, Microsoft will compete more effectively with its rivals. And it must be noted, Microsoft is supposedly the biggest in the niche it is operating in.

Conclusion

Looking at its sales of the Surface, initial sales of the Surface Pro, and the prospect of rising sales of tablets worldwide, Microsoft appears to be a solid investment at the moment.

The article Global Trends Favor New Surface Pro originally appeared on Fool.com and is written by Maxwell Fisher.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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